Readers hoping to buy Palomar Holdings, Inc. (NASDAQ:PLMR) for its dividend will need to make their move shortly, as the stock is about to trade ex-dividend. The ex-dividend date occurs one day before the record date, which is the day on which shareholders need to be on the company's books in order to receive a dividend. The ex-dividend date is important as the process of settlement involves a full business day. So if you miss that date, you would not show up on the company's books on the record date. In other words, investors can purchase Palomar Holdings' shares before the 17th of November in order to be eligible for the dividend, which will be paid on the 2nd of December.
The upcoming dividend for Palomar Holdings will put a total of US$0.45 per share in shareholders' pockets. Dividends are a major contributor to investment returns for long term holders, but only if the dividend continues to be paid. So we need to investigate whether Palomar Holdings can afford its dividend, and if the dividend could grow.
If a company pays out more in dividends than it earned, then the dividend might become unsustainable - hardly an ideal situation. Palomar Holdings has a low and conservative payout ratio of just 5.5% of its income after tax.
Companies that pay out less in dividends than they earn in profits generally have more sustainable dividends. The lower the payout ratio, the more wiggle room the business has before it could be forced to cut the dividend.
View our latest analysis for Palomar Holdings
Click here to see the company's payout ratio, plus analyst estimates of its future dividends.
Have Earnings And Dividends Been Growing?
Companies with consistently growing earnings per share generally make the best dividend stocks, as they usually find it easier to grow dividends per share. If earnings decline and the company is forced to cut its dividend, investors could watch the value of their investment go up in smoke. It's encouraging to see Palomar Holdings has grown its earnings rapidly, up 101% a year for the past five years.
This is Palomar Holdings's first year of paying a regular dividend, which is exciting for shareholders - but it does mean there's no dividend history to examine.
The Bottom Line
Has Palomar Holdings got what it takes to maintain its dividend payments? Typically, companies that are growing rapidly and paying out a low fraction of earnings are keeping the profits for reinvestment in the business. Perhaps even more importantly - this can sometimes signal management is focused on the long term future of the business. Palomar Holdings ticks a lot of boxes for us from a dividend perspective, and we think these characteristics should mark the company as deserving of further attention.
With that in mind, a critical part of thorough stock research is being aware of any risks that stock currently faces. Case in point: We've spotted 1 warning sign for Palomar Holdings you should be aware of.
If you're in the market for strong dividend payers, we recommend checking our selection of top dividend stocks.
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